Friday, March 09, 2012

CP: Customer relations drives Multi-Year Plan's success

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In a letter to shareholders, John Cleghorn, Chairman of the Board of Canadian Pacific outlined the railroad's Multi-Year Plan and customer relationship success.

"CP's management team is aggressively and successfully executing on the Company's Multi-Year Plan and has the full support of the Board of Directors. Your Board and management team firmly believe that CP's strong, established relationships with customers will continue to create significant value for shareholders," he wrote. "Strong and profitable customer relationships are essential to maintaining and expanding the volume growth that underpins CP's Multi-Year Plan to increase earnings per share, drive down the railroad's operating ratio and deliver greater shareholder value."

During 2011 and early in 2012, CP signed a number of commercial agreements with customers, terminal operators and ports.

"We announced a new five-year agreement with Canadian Tire and a ten-year agreement with Canpotex," stated Cleghorn. "In addition, CP has worked with our customers, leveraging technology to enhance car request management and implementing new productivity tools. In addition, CP has, for many years, had a comprehensive program focused on enhancing the customer experience. This includes customer satisfaction surveys, the launch of a Customer Advisory Council, introduction of a new Customer Relationship Management System and enhanced electronic self-serve capabilities.

Cleghorn wrote that CP's emphasis on strong customer relationships is paying off.

"Longer-term contracts, such as those under which CP transports millions of tons of coal and potash, have price escalation and full fuel recovery built in and planned capital investment to improve productivity is expected to further improve profitability over the term of these contracts. As part of our Multi-Year Plan, CP is focused on expanding network capacity to safely and efficiently support higher volumes while controlling costs so that the best possible operational and financial results can be achieved," he stated.

CP's market development activities enabled the company to take advantage of its access to the Bakken oil formation, the Marcellus gas formation and the Alberta oil sands area.

"As a result, CP is attracting new customers to invest and ship by rail energy related products, including crude oil, sulphur, fuels, diluents and materials key to the energy industry, such as pipe and frac sand." Cleghorn wrote.

He explained that investments made under the company's Multi-Year Plan have positioned CP to be able to exploit new market opportunities These investments include:

• Siding and track expansions
• Enhanced infrastructure in the Western corridor to support productivity and growth and increased train sizes in coal, potash, and intermodal
• Investments in the North Mainline between Portage La Prairie, MB and Edmonton, AB designed to meet increased potash volumes, reduce route miles and increase efficiency with longer trains
• A $100 million capital investment in the U.S. network, including investments in the U.S. Midwest corridor, allowing increased North-South volumes in order to meet increased traffic demands and enabling CP to capitalize on the Bakken's growth potential

Cleghorn wrote, "In total, CP intends to invest between $1.1 and $1.2 billion each year through 2014 in order to be able to deliver quality service and provide the network capacity to fully capitalize on market opportunities and volume growth, as well as enhance productivity and reduce costs.

"Due to our strong and profitable customer relationships, capital investments and enhanced network reach, the prospects for expanded volume growth that is essential to your Company's success are bright under Fred Green and his management team. On behalf of your Board, I want to thank you for your continued support of CP," he concluded.

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